In the construction industry, mediation has become an extremely popular vehicle for resolving disputes that develop during and after projects. It is particularly appealing because (i) it can provide an early opportunity for the parties to resolve a case in lieu of more protracted and expensive litigation and (ii) if the case does not resolve, the communications, factual, and legal positions taken during the mediation will remain confidential and cannot come into play at trial.
Last month, the New Jersey Supreme Court handed down a decision that may profoundly affect these fundamental principles of mediation in New Jersey. In Willingboro Mall, Ltd. v. 240/242 Franklin Avenue, LLC, the Court addressed two key mediation issues: (i) whether verbal settlement agreements reached at mediation are enforceable and (ii) whether communications made in the course of such discussions are privileged from future disclosure. The Court issued two essential holdings that apply to mediations taking place in New Jersey. First, from now on, settlements reached at mediations that are not reduced to a written agreement and signed by the parties before the mediation comes to a close will not be enforceable. Second, while communications occurring during mediation ordinarily are considered privileged and confidential, that privilege can be waived by a party.
How Did The Owner Waive The Mediation-Communication Privilege?
In Willingboro, the owner of the Willingboro Mall sued a buyer over the terms of the sale. At the trial court’s direction, the parties mediated their dispute and, at mediation, agreed upon settlement terms verbally. When the buyer advised the Court that the parties settled, the property owner balked, sparking litigation over whether a settlement agreement was in place. The buyer asked the court to enforce the verbal agreement, and, in response, the seller asked the court to not to enforce it. In support of their arguments, both sides revealed communications that took place during mediation. The Supreme Court found that the owner waived the mediation-communication privilege by referencing the confidential mediation communications in its opposition to the buyer’s motion to enforce the settlement agreement. According to the Court, if the seller wanted to preserve the confidentiality of the negotiations that took place during mediation, it should have asked the court to strike the buyer’s motion without disclosing confidential mediation communications in its response.
What Are The Future Implications Of This Case?
Despite ruling that the parties’ verbal settlement agreement was enforceable, the Court held that, going forward, in order to be enforceable, settlement agreements reached at mediations in New Jersey will need to be executed in writing either before the completion of the mediation or immediately thereafter during an extension of the mediation “for a brief but reasonable period of time.” Since settlements are often reached and formalized during the days and weeks after a mediation session, parties in this situation would be wise to agree in writing that the mediation will remain open for a definitive time period so that a settlement down the road is not undermined by the Supreme Court’s ruling in Willingboro Mall. Interestingly, the Court seemed to suggest that an audio- or video-recorded agreement could meet the written agreement requirement.
With regard to the mediation communication privilege, while, as a general rule, communications between parties at mediation remain confidential and are not subject to disclosure, the Willingboro Mall case serves as a cautionary reminder that a party seeking the protection of the privilege invoke it before making a disclosure that could waive it.
Tony Byler is a Partner at Cohen Seglias Pallas Greenhall & Furman PC and a member of the Construction Group. As a trial lawyer, he focuses his practice on representing public and private owners, contractors, subcontractors and material men.
Kathleen M. Morley is an Associate with Cohen Seglias Pallas Greenhall & Furman PC and a member of the Construction Group.